Working Out How Much to Raise Before You Pitch Investors

One of the most common areas of uncertainty we see with entrepreneurs pitching investors, is how much they should ask for. Entrepreneurs justifiably worry that if they ask for too little they will be back looking for more 5 minutes later and if they ask for too much, they may end up scaring away investors or giving away too much equity.

One ‘belt and braces’ approach sometimes adopted is to talk in terms of ranges e.g. ‘we are looking to raise between $2-4 million’. Many investors, however, will perceive this vagueness as you being weak on numbers and not knowing how much you actually need.

Make it About Milestones

Seasoned investors know that when it comes to startups, an entrepreneur’s revenue projections are as reliable as our banking institutions. A greater degree of certainty can be achieved (note I say ‘greater degree’ rather than actual ‘certainty’) around how long it will take to achieve a key success milestone e.g. hitting a certain number of users or making your first sale.

One you have estimated how long it will take to achieve the milestone, the next step is to work out how much it will cost to reach it. So let’s suppose it will take you 16 months to achieve 250,000 users. Work out your monthly burn rate and multiply that by 16. Remember your monthly burn rate will vary, normally increasing over time.

The final step is to add in a buffer for the inevitable delays that will occur. So if you are projecting that it will take 16 month to achieve 250,000 users ask for enough investment to cover you for 22 months, so that you can focus on achieving the milestone. This will put you in a stronger position for your next round, rather than leave you worrying about the fact that you are about to run out of cash just before you reach your all important milestone.

Martin is the author of ‘Here’s the Pitch – How to Pitch Your Business to Anyone, Get Funded and Win New Clients‘ available from AmazonBarnes & Noble and all leading booksellers.

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About Martin Soorjoo

Martin Soorjoo is the founder of San Francisco based Pitch Clinic. Over the past 25 years he has advised, coached and worked with Senior Executives, Investment Bankers, Venture Capitalists, Angels, Startup Founders, Attorneys, Judges, Politicians and other high achievers. Martin works with his clients to increase their Performance, Productivity and Presence. He also helps them create and deliver high impact presentations, whether they are delivering an important keynote address, raising venture capital or seeking a senior position in a company or public body. A former award winning attorney, Martin is the creator of 3XP Performance Coaching and and author of 'Here's the Pitch - How to Pitch Your Business to Anyone, Get Funded and Win Clients' published by Wiley. During his career at the Bar, Martin was consistently rated by the world’s leading legal directories as a ‘leader in his field’. He is a Master Practitioner of Neuro-Linguistic Programming (NLP) and expert in body language and performance psychology.

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